Managing and understanding the key stages of asset life cycle management is important to get the most efficient use out of them and to best benefit your business.
Regardless of the size of your business, all businesses rely on their assets. With this in mind, it’s important to be aware of asset life cycle management.
What is an Asset?
An asset is any resource that is used to generate cash flow, reduce expenses or provide economic benefits for an individual, government or company.
Assets contain economic value and often benefit a company’s day-to-day operations, increase the overall value of a company or contribute to an individual’s net worth.
How Do Assets Work?
Assets are accumulated in the hopes they will provide economic benefits which can either be short-term or long-term.
An asset can either appreciate (increase) or depreciate (decrease) in value over time, which affects the individual or company as a whole.
Assets are often categorised by how quickly they can be converted into cash. There are 6 ways that assets can be categorised.
Current Assets
Current assets are liquid assets that can be sold and converted into cash fairly quickly. Current assets for companies can include inventory, cash, accounts receivable and prepaid expenses.
Fixed Assets
Fixed assets, also known as long-term assets, usually take a longer time to earn any cash value and are considered low liquidity. Some examples of fixed assets include buildings, land and furniture.
Tangible Assets
Tangible assets are physical property that are often in the owner’s possession. Tangible assets can be inventory, real estate, machinery, cash or furniture.
Intangible Assets
Intangible assets are items or goods that exist theoretically rather than physically. Some examples of intangible assets include permits, trademarks, patents, intellectual property and brand reputation.
Operating Assets
Operating assets are assets that generate revenue through day-to-day business operations and that help maintain workflow. Examples of operating assets include copyrights, inventory, machinery and licences.
Non-Operating Assets
Non-operating assets are business-owned items that generate revenue but are not really needed for everyday operations. Examples of this include short-term investments or vacant land.
What is the Asset Life Cycle?
An asset life cycle is a strategic and official approach to the management of a company’s assets. This is most commonly practised with asset management software.
With asset management software, it allows companies to analyse and better comprehend the life cycle of all the assets. This allows shareholders in the company to make better decisions regarding their assets, maximise the efficiency of their equipment and reduce any unnecessary spending costs.
Why is Asset Life Cycle Management Important?
Regardless of the size or type of industry, all companies are reliant on their assets. Each of these assets has its own life cycle and has different times when they perform the most efficiently. After inevitable wear and tear or depreciation, an asset’s peak performance diminishes and requires maintenance or improvement.
When disposing of an asset, it can be for various reasons such as the amount of usage, the way it has been used or its effectiveness.
Having successful asset life cycle management can estimate when an asset will reach its optimal peak performance and how much useful life the asset has left. This allows for planning when maintenance can be carried out or plans for a replacement.
Understanding and managing asset life cycles are beneficial to ensure they are effective for as long as possible. Additional factors that come with managing asset life cycles also include:
- Understanding asset depreciation values
- Specifying asset roles
- Ensuring compliance across the business
- Calculating the cost of repairs and replacements
- Building strategies to keep assets effective for as long as possible
The Stages of Asset Life Cycle Management
Asset life cycles may differ between different companies but almost always a company’s asset life cycle can be broken down into four key stages.
Planning
This first stage of an asset life cycle is crucial. Planning helps to establish whether an asset is needed, based on assessing existing assets. Introducing an asset management system can ease the process by analysing trends and data.
The decision to purchase an asset relies on the asset fitting the specific needs of the business. The decision also relies on how much the asset will contribute to its operations and generate revenue.
Acquisition
Once the decision has been made that the asset is needed and will contribute to the business, you then need to buy the asset.
When the asset is bought and acquired, the entirety of its life cycle can be tracked by using an asset management system. Some forms of doing this include GPS tracking and barcode labelling.
Operation and Maintenance
With the asset installed and operating, it is important to keep an eye on its operations and maintenance – the main portion of the asset life cycle.
During its operation, the asset should be regularly monitored and checked for performance issues that may unexpectedly occur as well as being vigilant with upgrades and audits.
The longer you have an asset, the more it will experience wear and tear. The older an asset, the more regular maintenance will need to be carried out to help prolong the life and value of the asset.
To prolong the value of an asset the best you can usually involve regular modifications and upgrades to keep assets the most efficient they can be.
<h3>Disposal
Despite the asset now no longer has any business value, it should be disposed of in the most appropriate way and with data protection in mind.
At the end of an asset’s lifecycle, it is disposed of by either selling it, repurposing it, throwing it away or recycling it.
If there is a further need for an asset, a replacement can be arranged and the asset lifecycle can start again.
Why Use Asset Management Software?
Asset management software is helpful for businesses to effectively manage their assets.
There are several reasons why an asset management software is beneficial for your business, to name a few:
- Having an asset management software helps you to avoid buying any necessary assets because the details of which assets are in use, lost or damaged are on record
- You can monitor an asset’s condition in real-time and arrange and log any maintenance
- As the number of assets grows, keeping track of them becomes more difficult and confusing. Having an asset management software is the best way to manage large numbers of assets
- Asset recording in an asset management software is more accurate and detailed compared to spreadsheets that are very vulnerable to human error
- Audits are much easier when done with software rather than manually
- Having a log of inventory makes it much easier to pay taxes and insurance costs for assets
- Asset management software produces regular financial reports so you can consistently monitor your business’s growth and finances
Book a Demo Today!
If you’re wanting to get the most effective use out of your assets, we offer an effective school asset management software and regular asset management software that allow you to manage all the key life cycle stages we have mentioned above.
If you don’t want to make any financial commitments without trying the software, book a demo with us and we’ll get in touch.